The vast majority of capital raised by special purpose acquisition vehicles remains undeployed as the year turns. More than 660 such SPACs need to put as much as $160 billion in public offering proceeds to work, raising the question, “Where?” A few insights from sectors attracting interest can point to future hot spots.
Buyers using Axial’s platform in the middle market actually indicate more interest in sectors that have yet to lead league tables (high interest in financial and business services being notable exceptions). To the extent that bidders’ non-disclosure agreements and letters of intent are a forward-looking indicator of deal activity, the volume of preliminary interest in education and food & hospitality implies that more robust deal volumes are ahead for these sectors.
Sellers in this year’s hot sectors might also find that the trend continues to be their friend. Technology deals will be in the center of the action if the proportion of vehicles targeting the sector have their way. At 33 percent, active SPACs in this industry far outpace the 19 percent of unspecified blank check companies and 13 percent of healthcare-focused listings.
The would-be TMT deal frenzy could present a powerful lift for sector valuations. SPACs paid less for target companies in the sector in 2020 than in recent years, with a median acquisition value of 13.5x the last twelve months’ earnings. That’s relative to 18.1x paid in 2019 and 13.3x in 2018, when equity offering proceeds were only a quarter of 2020’s aggregate haul.